SEA PORT PROJECT

GROUP 3NISHANT(28)

ABHISHEK DATTA(03)ELVIS(16)

UPAMA(52)SHALINI(40)

EXECUTIVE SUMMARY• Stimulate Trade and Regional development• Developed under Land-lord Port and Private Port Model in India• Opportunities for Private Sector –

– Port Operator at Major Ports– Port Developer at minor

• Have become Integrated Transport Centers and Logistics platforms for International trade

• Tariff Authority for Major Ports (TAMP) regulates the ceiling for tariffs charged by Major ports/port operators (not applicable to minor ports)

• India has 13 major ports and about 200 non-major ports, coast line of 7517 Km

• This industry play a vital role in growth and development of India's trade and commerce.

• Are dynamic nodes in the Supply chain involving complex international production / distribution network

• In this project we try to asses Infrastructural investments in Ports & there output in coming years

• As a investor what is future of our investment & mode of investments

INTRODUCTIONIndia has 13 major ports and about 200 non-major ports. Its cargo

traffic which was 976 million metric tonnes (MMT) in 2012 is expected to be 1758 MMT in 2017.this industry play a vital role in growth and development of India's trade and commerce. Government has allowed foreign direct investment of up to 100 per cent for projects regarding construction and maintenance of ports and harbours.

MARKET SIZE• FDI in November 2014 is worth US$ 1637.30 million• The ports sector was awarded 30 projects in FY14 • Investment over Rs 20,000 crore -threefold increase over the

preceding year• Ports handle around 95 % of India’s total trade in terms of volume• cargo traffic was 976 million metric tonnes (MMT) in 2012 is

expected to be 1758 MMT in 2017

MAJOR SEA PORTS IN INDIA

• Kandla Port- Gujarat

• Nhava Sheva- Maharashtra

• Mumbai Port

• Marmagao port- Goa

• Panambur Port- Karnataka

• Cochin Port- Kerala

• Tuticorin Port- Tamil Nadu

• Chennai Port

• Vizag Port- Andhra Pradesh

SEA PORTS

Kandla(child and partition)

Chennai(Oldest and Artificial)

Mumbai(busiest and biggest)

Ennore(most modern-in private hands)

Jawahar Lal Nehru(Fastest Growing)

Mangalore(exports Kudremukh iron-ore)

Marmugao(Naval Base also)

Tuticorin(southernmost)

Paradip (exports raw iron to Japan)

Kolkata-Haldia(Riverine port)

LOCATIONS OF MAJOR SEA PORTS IN INDIA

TYPE OF PORT PROJECT REQUIREMENT

• Industrial Port – Import & export

• Ship Building Yard

• ƒ Ship Breaking Yard

• ƒ Inland Water Transport

• ƒ Port Connectivity

• ƒPort Led Development

• Tourism

INVESTMENT There have been huge investment by government

into India's port .

Recent union budget 2015 government is expected to invest Rs 10,000 crore to disburse low cost funds to shipbuilders.

Government also has plans to invest Rs 10 trillion which would change the infrastructure in five years

Private players(public-private partnerships (PPP)) like Vedanta, Essar , SEW and ABG are finalised to invest around Rs3000 cr for expansion of Visakhapatnam port trust aimed at enhancing the port’s capacity

KEY APPRAISAL ISSUES WHICH NEED TO BE TAKEN CARE OF AS A LENDER

• Draft of the port-it includes overall cargo handling capacity of the port. It is an indicator of the overall business plan.

• Having user linkages-the user agreements in the form of “use or pay agreement” helps in assuring revenue source.

• Technical studies – such as seabed surveys, oceanographic studies, topographic studies, onshore geotechnical studies , marine geotechnical studies etc.

• Environmental impact assessment and social impact assessment studies are carried out while business planning to mitigate the negative impacts of the project to the environment.

Know what lenders look for?

• Credit history

• Capacity

• Collateral (when applying for secured loans):

• Capital

• Conditions

SECTOR OUTLOOKAccording to estimates by the Ministry of Shipping, cargo volumes in India are expected to breach the 1-billion tonne mark in the 2011–12; the 2-billion tonnemark by 2016–17; and 2.4 billion tonnes by 2019–20. A report on the Indian port sector (ICRA Rating feature, September 2011), released by consultancy firm ICRA, states that the prospects for cargo growth over the medium- to long-term remain positive based on the level of activities in the key end-user industries.

• Going forward, growth of traffic at Indian ports is expected to be driven mainly by higher volumes of coal (to meet requirements of the large number of current and proposed thermal power projects based on imported coal); containers (given the market under-penetration and potential for cost savings); crude oil and POL (large upcoming refinery capacity); fertilizers (strong domestic demand and low self-sufficiency); and steel (mega projects proposed in the eastern part of the country). Most of the expected traffic growth in India is based on domestic demand drivers, which are expected to spur growth in various port-related logistics and service activities, although competitive pressures in these business lines would remain high.

• For private players investing in the ports sector, another positive trend is the increasing adoption of the landlord/asset ownership model for major ports; this model allows the private sector a dominant role in capacity additions, and port services and operations. The Gujarat Maritime Board (GMB) has identified 10 greenfield sites to develop all-weather direct berthing ports under the build-own-operate-transfer (BOOT) mechanism. These ports will be transferred back to GMB after the completion of 30 years of operations under the BOOT mechanism.

REASONS TO INVEST• Ports employ a large workforce, both primary and

secondary.• nurture growth of other related industries like fishing,

aqua culture, ship repairs and dredging activities • ports create a kind of value chain of interrelated

activities of the hinterland (the often unchartered areas beyond a coastal district) that are mutually supportive and continuously growing.

GROWTH DRIVER

• Increasing trade activities and private participation in port infrastructure development.

• Rising cargo traffic and an increase in the number of non-major ports.

• Existing ports are investing on improving their draft depth.

• Focus on the development of terminals that deal with a particular type of cargo, for eg. LNG.

• India is the largest importer of thermal coal in the world and this is expected to grow due to increased demand for power.

STATISTICS

• Over 7500 kilometers of coastline with 12 major and 60 operational non-major ports.

• 90% of the country’s trade by volume and 70% by value is moved through maritime transport.

• 12 major ports in India handle approximately 58% of cargo traffic.

• Cargo traffic witnessed CAGR of 3.9% at major ports, 13.7% at non-major ports and 10.4% of container cargo during 2007-12.

• Cargo handled at major ports – bulk (44% – iron ore, coal, fertilizer) liquid (33% petrol, oil and lubricants) container (23%).

LIMITATIONS OF PORTS• Several major ports lack sufficient draft for large crude

tankers. Large vessels are berthed at Colombo, Singapore, or Dubai, and cargo is shipped to India later in smaller vessels, thereby escalating the freight cost. Additionally, all leading ports such as Mumbai, Jawaharlal Nehru Port Trust (JNPT), Visakhapatnam, and Mormugao handle more cargo than their designed capacities, further contributing to congestion and resulting in a longer turnaround time

• Despite investments from the private sector that are encouraging the modernization and development of ports, infrastructure continues to be a major issue.

• many ports are located in cities and cannot be physically expanded beyond a certain limit.

CAPACITY UTILIZATION AND SHARES BY MAJOR PORTS

GOVERNMENT INITIATIVE• The Indian government has set up the National Maritime

Development Plan (NMDP) to improve facilities at India's 12 major ports and it plans an expenditure of around US$ 12.4 billion.

• A further investment of over US$ 9.07 billion will be made for 111 Shipping Sector Projects by 2015.

• Hundred per cent foreign direct investment (FDI) under the automatic route is permitted for port development projects.

• Hundred per cent income tax exemption is provided for a period of 10 years for port developmental projects.

• Government has opened up all the areas of port operation for private sector participation.

• The Indian government is considering a US$ 2 billion package to help local shipping firms finance new vessel acquisitions as global lenders tighten up their purse strings.

MODE OF INVESTMENTSAdvantages Disadvantages

Direct investment in Project • Direct access to assets• Direct control over assets

• Lack of diversification• High minimum investment capacity• Difficulty of access to investment projects• Dedicated teamessential

Direct infrastructure funds • High level of control over assets

• Choice of specific strategy

• Need to have internal resources available

• High minimum investment

Infrastructure funds of funds

• Maximum diversification• Low minimum investment• Consolidated reporting• No specialized team required

• Level of additional expenses• Limited control over underlying assets• Risk of multiple holdings of the same asset

RISK OR ENTRY BARRIERS

Increasing debt financing

Locked up equity in existing Projects

Lack of International

Finance in India

Resiliency to variations in

economic cycleCost overruns

Macroeconomic, legal and

political aspects

Import & Export Fluctuations

Inability of concessionaire

to meet funding

Design and technological

Complex Regulations &

Law

Environmental Issues Related

VALUATION OR MULTIPLES FOR SEAPORT PROJECTS

• Discounted cash flow (DCF) Valuations

• Physical Inspection of land, building & other fixed assets

• Net Asset Value (NAV) shall be declared at least once a year

• Leverage ratios

• Price/Earning Ratio

• Exit Multiples

SUCCESS STORY – PUBLIC PRIVATE PARTNERSHIP

• Location: Dighi Bay of Rajpuri Creek, about 50 nautical miles South of JNPT

• ƒ Promoter: Balaji Infrastructure Projects Limited (BIPL)Estimated total investment in Initial Phase - Rs. 23.90 bnPresent Status• Substantial part of the Engineering studies have been

completed. Balance studies are underway.• All the approvals including approval from Ministry of

Environment and Forests, Government of India have been obtained.

• Discussions are on with potential Users, Sub-Concessionaires for berths and Partners for developing the transportation links.

CONCLUSIONThe port projects offer a good investment opportunity to a lender even though investment is very high as compared to other infrastructure projects reasons are:• This industry play a vital role in growth and development of

India's trade and commerce • Increasing investments and cargo traffic• The Planning Commission of India in its 12th Five Year Plan

projects a total investment of Rs 180,626 crore (US$ 29.31 billion) for this industry.

• Also, through its Maritime Agenda 2010–2020, the Ministry of Shipping has set a target capacity of over 3,130 MT by 2020.

• Over 50 per cent of this capacity is anticipated to be generated at non-major ports.

• India In present market scenario gives ample opportunities to make a profitable investment in port projects

• Investment need of $13.5 billion in the major ports under National Maritime Development Program (NMDP) to boost infrastructure at these ports in the next 9 years

• Growth in merchandise exports projected at over 13% p.a. underlines the need for large investments in port infrastructure

• Regulations tax policies are liberal to promote more private investment

• Make India Projects & recent other initiatives to promote export makes it more lucrative as an investment option for future

• A comprehensive National Maritime Policy is being formulated to lay down the vision and strategy for development of the sector till 2025

• Industry & it’s operations are growing quite significantly